Vienna Insurance 2015 Pretax Profit Down 67% on Romanian, Polish Writedowns

By Boris Groendahl and Alexander Weber | March 18, 2016

Vienna Insurance Group AG fell the most since 2009 after writedowns at its Romanian and Polish businesses added to earlier impairments of computer systems and helped push pretax profit for last year 67 percent lower.

The shares fell as much as 15 percent and were 14 percent lower at 19.63 euros at 9:42 a.m. [on Thursday, March 17]. Pretax profit declined to 172 million euros ($193 million) from 518 million euros in 2014, the company said in a statement late Wednesday. That compares with the average estimate of 299 million euros in a Bloomberg survey of seven analysts.

The disclosure came three weeks before a scheduled earnings release and on the eve of a “strategy update” from the company based in the Austrian capital. Vienna Insurance named Elisabeth Stadler its new chief executive officer in December after disagreements over strategy led to the departure of Peter Hagen.

“Apart from the decreased current financial income and the impairment done in the third quarter 2015, additional impairments of intangible assets impacted this result,” Vienna Insurance said in the statement. “They evolved from changes of the cash-generating units in the course of the extension of the management board, from a more cautious view on developments in Romania and from tax changes in Poland.”

Insurers are struggling with record-low interest rates, which are a particular challenge for their life insurance businesses. Total premiums declined 1.4 percent in the full year, Vienna Insurance said. It didn’t elaborate further on the fourth-quarter writedowns.

The company is targeting pretax profit of 400 million euros this year and will propose to reduce the dividend payout to 60 cents a share, compared with 1.40 euros for 2014.

“No near-term recovery is expected,” Michael van Wegen, an analyst at BofA Merrill Lynch Global Research, wrote in a note to clients. “We cut our forecasts by 22 to 26 percent for future years, and estimate profits to remain below 2014 levels by 2018.” Van Wegen downgraded the shares to underperform.

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